Human Resources

This overview is a very early attempt to get you up to speed on the areas of health reform that are likely to emerge from the confirmation process of Rep Tom Price. There’s a temptation to dismiss everything being discussed as rhetoric or too early in the regulatory process. However, there are key themes and elements that will impact employer-sponsored healthcare that are likely to survive. In addition, other market trends are unlikely to change and as a result, require our continued vigilance and strategic discussion. In other words, the cavalry has not arrived in our battle with rising costs.

Tom Price’s Empowering Patients First Act (H.R. 2300) is of particular interest. It is unlikely to be accepted as a “replacement” bill but it offers keen insights into the GOP mindset guiding the notion of “repeal and replace”. It is likely if any legislation is approved, it would take years to completely implement and not unlike the ACA, reform could be whipsawed by another sudden political shift. Given the profile of the 2018 mid-term elections, its unlikely the GOP grip on the WH and Congress will change – at least until 2020 – more than enough time to drive a new legislative solution.

H.R. 2300 is important because its the only GOP-authored proposal that incorporates many elements of a “repeal” plan; and, despite the partisan acrimony of today’s confirmation interviews, Price is likely to gain confirmation and guide Health & Human Services and those charged with setting policy for commercial insurance, Medicare and Medicaid.

It’s impossible to summarize H.R. 2300 in one page but we wanted to underline and key talking points for you should you get cornered by anyone requesting a point of view on what employers should expect over the next four years. With the help of a recent Kaiser Foundation white paper, we want to offer an opinion. Clearly, it’s going to be a challenge to confidently predict whether the new administration will/can meet its promises. Yet, we are taking the liberty of staring deeper into the crystal ball and offering some insights. In no particular order:

H.R. 2300 Key Elements: Repeal ACA entirely, including individual and employer mandates, private insurance rules, standards for minimum benefits and maximum cost sharing, and premium and cost sharing subsidies. Provide refundable tax credits of $900 to $3,000 based on age to individuals to purchase insurance in the individual market. Require insurers to offer portability protections for people who maintain continuous coverage. Pre-existing condition exclusions and rate surcharges based on health status can otherwise apply. Implement state high-risk pools with federal grant support for three years. Establish Association Health Plans and Individual Membership Associations through which employers and individuals can purchase coverage. Permit sale of insurance across state lines.

Encourage use of Health Savings Accounts. Cap the tax exclusion for employer-provided health benefits and permit employers to contribute toward workers’ premiums for non-group health policies. Permit enrollees of public programs, and employer-sponsored group health plans to opt out of coverage in favor of private non-group insurance with tax credit subsidy. Repeal Medicaid expansion. Repeal Medicare benefit enhancements, savings provisions, and premium for higher-income beneficiaries, taxes on high earnings, and quality, payment and delivery system provisions. Eliminate certain constraints on private contracts between physicians and Medicare beneficiaries and the amount that can be charged for services. Individual mandate no requirement for individuals to have coverage

Commentary: This legislation is about establishing universal “access” to the individual market and to create a robust range of products whose coverage and cost will vary dramatically – well beyond the percentage of AGI and actuarial values mandated by the ACA. The creation of tax credits and vouchers to purchase in the individual market and guarantee issue based on coverage continuity could create opportunities for employers to offer financial incentives for employees to opt into coverage pools other than those of the employer. H.R. 2300 relies on financing much of the legislation through a cap on the taxation of benefits

Premium subsidies to individuals – Provide a refundable, flat, tax credit for the purchase of health insurance in the individual market ($900 per child, $1,200 age 18-34, $2,100 age 35-49, $3,000 age 50 and over; indexed by CPI.) Tax credit can be applied to any individual health insurance policy sold by a licensed insurer, including short-term policies, but not excepted benefits (e.g., insurance only for specific disease); excess credit can be contributed to HSA. Permit individuals eligible for other health benefit programs to receive a tax credit instead of coverage through the program. Repeal ACA cost sharing subsidies.

Commentary: It’s likely the number of those insured under reform will reduce if the government moves toward less generous tax credits as well as grants Medicaid block grants to states to manage those expenditures as they see fit. The increasing of uninsured and a greater emphasis on high deductible plans could lead to higher incidents of bad debt and increases in unreimbursed care.

Small employers can buy coverage through association health plans (AHPs). For fully insured small group AHPs, state rating laws and mandated benefits are preempted. Self-insured AHPs permitted; for federally certified self-funded associations with membership of at least 1,000, State regulation is preempted. Maintain dependent coverage to age 26. Repeal ACA minimum loss ratio standards, rebate requirements for insurers with claims expenses less than 80% of premium revenue (85% for large group policies). Repeal ACA right to independent external appeal of denied claims. Repeal ACA transparency standards, including requirement to offer standardized, simple summary of benefits and coverage, and requirement to report periodic data on denied claims and other insurance practices.

Commentary: Insurers are likely to benefit from specific changes although Price has historically been at odds with insurers – particularly in areas where insurers attempt to intervene between a treating physician and a patient. Employer reporting requirements should be simplified and the most cumbersome elements of the ACA are likely to be eliminated.

Employer requirements and provision – No requirement for large employers to provide health benefits that meet minimum value and affordability standards; repeal prohibition of excessive waiting periods. Cap annual tax exclusion for employer-sponsored benefits at $8,000 for self-only/$20,000 for family coverage, indexed annually to CPI. Require employers that sponsor group health plans to offer employees an equivalent defined contribution for the purchase of health insurance in the individual market. Permit employers to automatically enroll individuals in the lowest cost group health plan as long as they can opt out of coverage. Wellness incentives up to 50% of cost of group health plan permitted. Encourage use of Health Savings Accounts (HSAs) with one-time refundable tax credit of $1,000. Also raise annual tax-free contribution limit to $5,500; Allow tax-free transfer of HSA balances at death to any beneficiary. Repeal ACA prohibition on pre-existing condition exclusions. For people with at least 18 months of continuous prior coverage, no pre-existing condition exclusion period can be applied. For people with less than 18 months of continuous prior coverage, exclusion periods up to 18 months are permitted, but must be reduced by prior continuous coverage.

Commentary: Capping the annual exclusion for health benefits at $8k/$20k is credible foreshadowing that the taxation of benefits is on the horizon. Those that breathed a sigh of relief that delay and subsequent change of POTUS meant the defeat of the Cadillac tax, must be prepared to review the value of their plans. Taxation could set in motion a mass migration toward high deductible plans. Offering an equivalent defined contribution to employees to purchase on the individual market could give rise to associations and individual purchasing groups competing with or attracting employees into alternative purchasing groups. The emphasis on defined contribution could further accelerate the move toward private exchanges.

Health system performance- Health care professionals engaged in negotiations with private insurers and health plans over contract terms are exempt from federal antitrust laws. Create a health plan and provider portal website to provide standardized information on health insurance plans and provider price and quality data. Provide states with funding to implement the standardized health plan and provider portal website.

Commentary: Doctors can now organize purchasing cooperatives and in doing so likely to drive up unit cost through more collective bargaining with insurers.

In ancient Athens, the philosopher Diogenes wandered the daylight markets holding a lantern, looking for what he termed, “an honest man.” It seems since the dawn of the consumer economy that customers and buyers have traded most heavily on a single currency – trust. Three millennia later, our financial system still hinges on the basic premise that the game is not rigged and any trusted intermediary is defined by a practitioner who puts his client’s interests ahead of his own.

Anyone responsible for procurement of healthcare may feel like a modern-day Diogenes as they wander an increasingly complex market in search of transparent partners and aligned interests. The art of managing medical costs will continue to be a zero-sum game where higher profit margins are achieved at the expense of uninformed purchasers. It’s often in the shadowed areas of rules-based regulation and in between the fine print of complex financial arrangements that higher profits are made. Are employers too disengaged and outmatched to manage their healthcare expenditures? Are the myriad intermediaries that serve as their sentinels, administrators and care managers benefiting or getting hurt by our current system’s lack of transparency and its deficit of information?

Who’s to Blame for the Failure to Rein In Healthcare Costs?

In his recent column “Yes, Employers Are To Blame for Our High Medical Prices,” Princeton political economist Uwe Reinhardt controversially lays partial blame for the healthcare cost crisis at the feet of employers. Reinhardt suggests that some employers have been passive, uninformed and in some cases, unable to muster the internal energy to get their own leadership teams to commit time to becoming more informed purchasers of health services. Where corporate procurement might realize aggressive discounts from vendors, healthcare has remained outsourced to insurers who have been largely unsuccessful in controlling rising costs and conflicts of interest.

Poor procurement arises out of a failure to act properly – to be informed, to be prepared and to ask the right questions. Some critics of our broken system complain that employers are simply getting poor advice from consultants, agents and brokers who often move at the speed of disruption-averse clients. Some point to government for public-to-private cost-shifting, poorly conceived legislation, and poor regulatory oversight over an industry that has witnessed the rapid consolidation of hospitals and insurers into an oligopoly of control that is difficult to deconstruct.

As the next phases of reform plays out across public and commercial markets, unintended consequences, odd alliances and new conflicts of interest will arise out of the ground fog of purchasing choices. Employers without a firm grasp of the key elements of healthcare cost-management are likely to fall prey to flavor-of-the-month stop gap solutions or Trojan Horse cost-shifting schemes that may control employer costs but will do little to ameliorate underlying negative trends.

Will Self-Centered Fear Reveal the Worst of the Industry?

Healthcare industry stakeholders are scrambling to remain relevant as the locomotive of Obamacare leaves the station. Players once considered essential stewards and stations along the tracks to controlling healthcare costs are worried that they may soon be bypassed. Disintermediation is weighing heavily on anyone who sits in between those that deliver care and those who consume it. The national vision seems clear: universally affordable health coverage leading to lower costs for both the private and public sectors. And while we are at it, let’s toss in a free flat-screen TV.

Employers are naturally cynical to the legislative complexities of the ACA and are having a tough time trying to figure out how to use the momentum of health care reform to make changes that will insulate them from future cost increases. But, it’s hard to know which direction to go – especially when opinions diverge around the likelihood that market-based reforms can lead to sustained low single-digit medical trend. It’s getting hard to know whose opinion to believe, and worse yet, what is motivating their point of view.

The anxiety around disintermediation is causing many stakeholders to explore how to move up and down the services value chain in an effort to carve out a permanent role as a participant in the new age of healthcare delivery. In doing so, many firms are discovering inherent channel conflicts and developing facilities that may cannibalize their own existing business models to survive the digital transformation of an analog industry.

If we believe that any 2.0 version of a solution should be better, faster and cheaper, we should be excited about the changes that lay ahead. The challenge for employers will be to see through to the institutional incentives that are causing many players to pivot into new business models – consultants selling products, hospitals selling insurance, insurance companies becoming providers, and employees being asked to become consumers. Just how muddy is the water getting? Consider the following positions.

Hospitals

As inpatient admissions continue to decline and larger healthcare systems find themselves burdened with brick-and-mortar overhead and high unit costs, there is pressure to continue to pivot into integrated health delivery and higher volumes of ambulatory and outpatient services. So far, so good.

With healthcare reform, these same hospitals are being encouraged to form risk-bearing Accountable Care Organizations (ACO) to help manage population health of retirees and share in the subsequent savings that could be achieved by focusing on value instead of volume. It seems an easy jump to turn an ACO into a commercial venture offering employers the ability to contract directly with the large hospital system as their medical home – essentially becoming an HMO, bearing risk for the health of its members. Incentives change from treating illness to keeping people healthy. The big problem is most of the hospital systems putting their toe in the water of these risk arrangements are also the most expensive hospitals in any PPO network.

Will these hospitals be able to achieve competitive unit cost and low year-on-year trend increases, or will they simply reduce some cost by disintermediating insurers but continue to charge higher costs for services? Once risk shifts to integrated healthcare delivery systems, expect more liability arising out of alleged conflicts of interest and rationing of care.

Insurers

Many argue that insurers, not unlike banks, have become highly risk averse and are rapidly moving toward a new role as health service and technology infrastructure providers. Most insurers have failed to become trusted consumer brands. Much of this distrust is arguably deserved given their historic insensitivities to customer service and business practices that left purchasers unable to decipher the complex and seemingly arbitrary calculus of pricing and claims payment policies. Most small and mid-sized employer renewals have become frustrating annual rites of passage.

Truth be told, most fully insured employers are beginning to understand that healthcare is like a Las Vegas casino – if you play long enough, the House always wins. The deck is further stacked against business as employers are often scared away from more efficient financing methods like self-insurance to fully insured, bundled programs where all health services are provided through a single insurer including RX, behavioral health, chiropractic and radiology. Bundling affords insurers ample pricing mobility to move required margins across a range of services to achieve their profit targets. While there is nothing illegal with these business practices, it does give rise to healthy cynicism regarding the industry’s commitment to achieve affordable care over personal profit. As one healthcare executive commented, “Look, our job is to hide the Easter eggs and your job (as an advisor) is to find them.”

Public managed care stocks are enjoying 52-week highs as Wall Street clearly sees no signs of near-term pricing pressure. Optically, the new insurer business model, which is now expanding into Medicaid and Medicare, gives the appearance that insurance firms are operating at lower margins while their health service subsidiaries report record growth and profit. It’s hard to trust a vendor who is both serving clients as claim payer and providing services through a subsidiary for undisclosed transfer pricing. This practice will give rise to conflicts of interest as payers pivot into providing care.

Consultants

Large consulting firms have long-since laid claim to the high ground of objective employer advocacy. As retiree medical and RX costs began to balloon in the late 2000’s, consulting firms saw value in carving out elements of these costs from insurers — creating owned and managed facilities to purchase drugs and offer defined contribution retiree exchanges. A rush of mergers and consolidations introduced additional services to traditional Human Resource and Employee Benefits consultants offering outsourced administration and defined contribution exchanges for active employees. The success of these first-generation facilities led to higher margin annualized revenue streams and a pressure to expand proprietary product solutions into a culture that had historically been agnostic to solutions and vendors.

As employers express interest in exchanges and alternative delivery models, consulting firms see an opportunity to leverage their trusted relationships to steer clients to owned and operated facilities. While clearly believing their owned solutions offer a better mousetrap, the fee for service consulting community is now confronted with a business model conundrum. Do we create products and proprietary facilities to meet the profitable and growing demand for administration and service platforms? If so, will our own consultants consent to steering our customers to our own facilities?

To add additional pressure, Wall Street has rewarded public consulting firms and defined contribution/benefits administration companies with generous valuation uplifts – increases in market cap well ahead of actual enrollment, creating internal pressure to promote exchange participation to deliver on analyst expectations. Certain analysts are convinced that the majority of large employers will convert to exchange-based purchasing in the next decade and in doing so, they are seeking to invest in firms that seem positioned for these future purchasing trends.

The administrative services that accompany many proprietary online enrollment platforms will benefit exchange managers, creating almost captive relationships as employers see higher frictional costs moving from one exchange to another. Employers may essentially be stuck paying annual administration and commissions as part of an exchange-based relationship. Where a consultant should play the role of trusted advisor to help choose the exchange that is best for their client, firms will now be pushing their people to endorse their own exchanges, and in some cases, promote financing arrangements that defy decades of empirical data — in particular those exchanges that are encouraging employers to convert from self-insurance back to fully insured financing as a means to promote purer competition between carriers. Befuddled HR professionals are increasingly torn between long-term institutional relationships and a nagging suspicion that their consultant is now promoting a model out of self-interest. Now armed with hammers, it appears that every client is beginning to go look like a nail.

Brokers/Agents

Brokers and agents have long enjoyed a too-cozy rapport with their HR and Benefits counterparts in small and mid-cap America. In the world of middle-market brokerage, generalists are often advising generalists and relationships routinely trump fiduciary accountability. Brokers leverage relationship-based trust and are often heavily influenced by how they are remunerated. Some brokers prefer fully insured plans as administrative costs, taxes, fees and commissions are commingled and not as visible to a cursory review of costs. One could argue that commissions by their very nature create conflict of interest. The continued practice of volume and contingent-based bonus payments also clouds the broker’s ability to claim total objectivity.

Most relationship-based employers do not question or understand their broker’s remuneration arrangement or in some cases, may knowingly pay higher commissions to their broker so the broker might serve as an outsourced benefits staff – using headcount that HR could never successfully justify internally because of finance and staffing controls.

Healthcare 2.0 will be characterized by data – lots of data and an increased dependence on compliance and technical resources that will shake the traditional transactional broker profit model to its core. Informed clients will desire transparency and accountability for all services, and judge value based on a numerator of outcomes divided by a denominator of cost of services. Brokers will need to be able to demonstrate actionable interventions, improve clinical trends, assist with optimal financing arrangements (including actuarial support for plan value-setting and financial forecasting), provide strong communications and HR support for concierge and employee engagement tools, and understand healthcare economics expertise to hold insurers accountable for achieving network discounts while limiting hidden margins and fees. Transactional placement skills will be table stakes as the 2.0 broker reinvents themselves as a solutions provider with no embedded conflicts of interest. The big question remains: Is it possible for the broker’s goals to align completely with the client’s goals?

Human Resources

A Human Resources manager facetiously shared with me, “I got into the business because I really liked people and I hated math. I now spend my days with a calculator trying manage a massive human capital spend and I don’t really like people.” If you watch where most HR and Benefits Managers’ feet go, it is not in the direction of disruption and greater intervention into the personal and consumer healthcare habits of employees. America’s C Suite has been surprisingly unwilling to spend the time with HR to understand the root causes of their healthcare costs and instead condones what is now a regular and unimaginative annual cost-containment exercise of cutting benefits and increasing contributions as a means to achieve a workable healthcare renewal price point.

While Professor Reinhart’s gentle rebuke of HR may have been a bit undeserved, it is not completely without merit. Structure has long since trumped strategy in employer healthcare plan management. A good renewal sees very little changing, when in fact, change must occur if behavior is going to change. “Disruption” is a broad, amorphous HR term used to describe anything that creates additional work in the form of employee complaints and additional distractions from the job of doing one’s job. To avoid the steeper slopes of the healthcare cost-containment mountain, those charged with overseeing Human Capital have travelled the easier, well-trod trails of cost-shifting, resulting in the erosion of take-home pay.

Given that 90% or more of America’s HR and Benefits professionals are responsible for healthcare but are not rewarded for delivering low, single-digit medical trend, it’s no wonder that their focus is on where they do get rewarded – limiting noise, smoothing feathers and keeping the planes and trains of human capital running on time.

One HR Manager related, “It’s hard to get management to focus on the complexities of healthcare spend. They want to see the year-over-year costs and whether their doctor is still in the PPO network. They don’t have the attention span or interest in tackling all these issues.” Sound familiar?

So Who Can An Employer Trust?

Trust and transparency must be the currency that anchors the employee benefits marketplace of tomorrow. No one in a corporate HR and Benefits role can afford to be seen as a friend and not be seen as a fiduciary. Stakeholders – insurers, consultants, brokers, providers – are all scrambling to preserve their roles as trusted B2B advisors while nervously anticipating a growing consumer market. While public exchanges limp along and blue states and red states fight over the notion that reform is succeeding, employers will be on their own for the foreseeable future – forced to revisit their vision, strategy and structure for healthcare and benefits. In the end, it’s all about aligning incentives. If a CEO tells his/her HR team that 2015 bonuses hinge on managing medical costs to a 3% trend or less – without raising contributions or reducing benefits – one wonders whether friends will become overnight fiduciaries.

In the months and years ahead, employers will find themselves wandering among the tall trees of monolithic insurers and a dizzying new roster of online and consumer engagement tools. It will be all about alignment of interests and holding people accountable for results – not bedside manner. Purchasing will require a lot of homework, faith and a strong sense of the corporate values of the partners you choose to help you shape your plans.

If ever there was a time for honest, unfiltered advice, it’s now. The search is on for affordable healthcare and for stakeholders who are beholding only to their client’s interests to get costs under control

When Steve Brill released his recent Time magazine article, Bitter Pill – Why Medical Bills Are Killing Us,, it was an overdue chapter in a critical primer to educate the American public on the perverse incentives plunging our healthcare system and our nation into dysfunction and debt. The Time piece was the first major media effort in some time to shine a light on the factors beyond the insurance industry that contribute to costs that now eclipse 16% of our GDP.

Brill’s article clearly touched a clear nerve as the American Hospital Association immediately issued a multiple page press release refuting many of the writer’s observations and complaining that billing practices were an outgrowth of a cat’s cradle of cost shifting and an increasingly Darwinian landscape where only the best equipped, resourced and positioned hospitals will survive.

Yet, Brill’s facts are hard to refute. Many not for profit hospitals are paying seven figure executive salaries and posting double digit margins achieved through complex and imbalanced billing practices that rival Egyptian hieroglyphics. Time’s expose demystifies the complicated calculus of hospital billing and alleges that the system of billing and reimbursement is hopelessly broken leaving the most vulnerable of victims in its wake – those earning too much to qualify for Medicaid but earning far too little to afford coverage. The stories are gut wrenching and identify a range of misaligned financial and care motives across high margin practices such as oncology, imaging, lab, emergency and pharmacy services. The findings also tie to a June 2009 Harvard study that found that 50% of all US bankruptcies were directly related to medical bills and/or illness.

When I crossed the proverbial River Styx from healthcare consultant to regional CEO of a health plan, I was plunged into a bitter and high stakes battle with large hospital systems demanding and often getting double digit unit cost increases. The result was a zero sum game where in my resolve to try to control double digit trend, I would attempt to extract steeper discounts from smaller providers and community based hospitals – ironically providers who offered lower unit costs and similar quality than bigger systems. However, consumers demanded big name brands. The daisy chain of cost shifting punished weaker players and slowly drove primary care and small hospitals to the edge of extinction. Meanwhile, the uninsured paid the most for healthcare – often paying 200%-400% more for care in healthcare’s most expensive setting, the hospital emergency room.

In 2007, I watched two regional hospitals engaged in an arms race for membership through aggressive marketing and sub-specialty expansion. When the hospitals both sought to expand their cardiology programs, the practice of inserting post angioplasty stents increased by 300%. While the risk of stents outweighed the benefits for certain patients with (CAD) coronary artery disease, cardiac interventionalists routinely placed stents in their patients, not because patients always needed them but rather because they could earn more money. It’s a familiar story: The doctor tells the patient they need a procedure. The patient, fearful and accustomed to the notion that more health care must be better, consents. To the degree, any payer attempts to disallow a recommended procedure as unnecessary, the payer is accused of bureaucratic meddling or worse, jeopardizing the quality of care for the sake of operating profits. Years later, we are finally beginning to understand that whoever regulates costs, access and necessity of treatment in the healthcare system – be it a payer or a governmental agency, is automatically fitted with a black hat and labeled the villain.

The Time’s article focusing on certain hospital billing practices are a subset of a nationwide game of cat and mouse as facilities seek to balance highly variable reimbursement from Medicaid, Medicare and commercial insurance. The fight over the true cost of care is often invisible to those footing the bill – employers. Many employers have no line of sight into the thorny negotiations between hospitals and their insurer. To make matters worse, if a large healthcare system threatens to drop out of an insurer’s PPO network, employers often urge their carrier to resolve its contract differences with the hospital to limit disruption for employees. The insurer, concerned over losing membership if the PPO network loses a flagship provider, quietly caves and the cost of inpatient healthcare trends continue to rise. To make matters worse, employers have consistently resisted implementing narrower PPO networks that might otherwise force billing outliers back toward the mean costs of delivering care. It seems employers want to fly first class but only pay for coach.

The insurance industry has committed its share of financial and public relations misdemeanors during the two decade run up of healthcare costs. Yet, insurers were uniquely singled out during the recent debate leading up to the Affordable Care Act. Politically, the black hat payers were easier targets than other stakeholders who have abetted the demise of our system: consumers with unrealistic expectations, doctors using malpractice avoidance as air cover to oversubscribe services, drug companies and PBMs engaged in intricate and difficult to understand pricing practices, employers who have remained parochial and disruption averse, the food and agricultural industries for practices that promote products that adversely impact public health, the government for its serial under-reimbursement of providers through Medicaid and Medicare and a range of stakeholders who ineffectively advise and assist the industry in its quest for an optimal balance between quality and affordability.

Steven Brill’s thoughtful rendering is an inch wide and a mile deep as it illuminates the need for hospital payment reform. However, he stops too soon in his expose, refraining from identifying the other accomplices that drive these billing behaviors — including a Medicare and Medicaid system that enjoys low administrative costs but presides over an estimated annual $100B waste and fraud problem arising out of unmanaged fee for service care. Medicare is beloved by seniors partially due to the simple fact that it does not manage care. What Brill also misses is the private sector’s apathy in aggressively punishing high outlier unit costs charges by taking on some of our most sacred players – large teaching hospitals and system oligopolies that now dominate many regional landscapes. As consultants, we have failed to convince employers of the merits of eliminating open access PPOs, increasing consumer directed health plans, using scheduled reimbursements for elective surgeries and enforcing a bi-lateral social contract around good health by requiring workers to see a primary care doctor and receive age and gender appropriate testing to better manage health status.

As with any stakeholder that feels singled out, the AHA response to the Time’s article was swift and predictable. I’m sympathetic. Laying our affordability crisis at the feet of any one group misses the entire point of our issues in the US. However, the need for reimbursement reform and billing simplification is irrefutable. Our system is in crisis. The question remains: will we move towards a delivery model that allows market based reforms and affords consumers a greater role in driving quality and cost effective delivery or will we wake up in a decade to a single payer that rations access and peanut butter spreads reimbursement. One could argue our entire healthcare system can be best summed up by the average US hospital bill – opaque, misunderstood and bearing little relationship to true cost of the services.

A recent interview on reform between yours truly on AM Best. Will brokers survive the shifting landscape of healthcare reform? Will the Supreme Court throw out the individual mandate? Will insurance companies pay rebates in loose change? Inquiring minds want to know!

By the way, who said TV does not add twenty pounds to you! Where is that skinny kid I grew up with ?

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” – Charles Darwin

I grew up watching Mutual of Omaha’s Wild Kingdom. Not a week would go by that I would not hear Marlin Perkins, the silver-haired, khaki-clad naturalist-host whispering from a safe distance, “While my assistant Jim is being attacked by this carnivorous face eating leopard spider, I’ll hide behind this rock.” As with all television entertainers of his day, Perkins would find a way of using his place of safety as a segue to plug his sponsors. “And just like this rock is protecting me from the New Guinea head hunters who have just captured Jim, so Mutual of Omaha can protect you from the unexpected.”

Across a hundred Friday nights we would learn how natural systems in the wild kingdom presented us with cunning examples of social and biological collaboration. We were educated on examples of biomimicry – lessons learned through studying our physical universe and how species adapt and cope in a changing and interdependent ecosystem. There were myriad examples where the animal kingdom collaborates to endure – snakes writhing in nests by the thousands to conserve heat, fish that draft behind one another as they push against currents to spawn and the iconic Emperor penguins that congregate in huddled masses –taking turns insulating one another from inhospitable conditions and sub-zero winds.

Biologists now refer to the V-formation of flight that geese employ during protracted migratory flights as community based optimization. Geese demonstrate how a group relying on a perpetual rotation of roles can drive to a greater result than relying disproportionately on the strongest of its members. As each goose takes its turn to lead, other drop back to draft and regain strength. The formation and its shared leadership model have become a popular metaphor in corporate America for team building and shared responsibility. Yet where culture is driven by self-interest and ego, only the most enlightened cultures are able to truly grasp and inculcate nature’s messages into their own businesses. In some parts of corporate America, the senior geese – having spent years paying their dues flying at the head of the V — now feel it is their privilege to travel on the G5 jet and meet the rest of the flock in North Carolina.

While some of our most innovative technology and services providers are embracing biomimicry, it has been harder for analog US-based service businesses to fully embrace horizontal collaboration. Biomimicry and the theories of shared leadership reek of collectivism. Anyone who lives in the woods and wears short pants to work must be selling snake oil and may secretly be a card-carrying socialist. The natural allegories compelling us to study the “lessons learned from the snail dart” are quaint but useless touchstones. Life is indeed a jungle but as Hunter S Thompson once said, “business is a cruel and shallow money trench, a long plastic hallway where thieves and pimps run free, and good men die like dogs. There’s also a negative side.”

When I entered the workforce, I witnessed Wild Kingdom behavior as alpha personalities marked their territories, devious cuckoo birds laid eggs in other’s nests and weaker species became extinct due to their inability to change to Microsoft Office and Lotus Notes. I learned it was important to stay in the middle of the herd and not allow oneself to become separated from the group. It was on the fringes of life where the lions waited, feasting on those who broke ranks by listening to their own egos or by taking unnecessary risks. As leaders in waiting, we were taught that our highest priority was getting to the top of the food chain where one would reap the dividends of stature, authority and get the good seats at Dodger games.

We deified our senior management, often failing to notice that much of the real work was being performed by selfless teams below and around us, groups that learned to trust one another, collaborate and innovate to overcome barriers to success. As we matured and took our lumps as second lieutenant neophytes, we began to understand that the best run organizations were not led by all knowing oracles but by servant leader motivators and facilitators who fostered trust, culture and mutual respect – the true DNA of world class organizations. We learned the hard way that cooperation and collaboration were very different things.

As business stares into the new millennium’s hot and crowded competition, margins will come under intense pressure and shareholders will become impatient for transformative managers who can inspire their organizations to break from the status quo. In a time where might makes right, acquisitions now seem an easier evolutionary path for firms rather than tackling the steeper grade and complicated pitch of behavior and culture change. As the large get larger, conformity and marshal law are relied on as tools to ensure cooperation. Short-sighted managers eager to monetize their monolithic creations are worrying less about the unintended consequences of stop-gap thinking – leaving those concerns to succeeding leadership.

The seams and stitches in many hastily assembled organizations are beginning to show. From a distance these firms appear natural but upon closer scrutiny, they are mutations rather than functioning businesses. When one looks closely, it is impossible not to notice the scars, lack of coordination and tissue rejection from hasty grafts that have been poorly executed. Many firms that have grown through acquisition have failed to understand the power of bio-diversity and interdependent collaboration. They are now finding their own size is an impediment to realizing their total potential. As these executives search for the missing link in their own evolution, they need only turn to the natural world for lessons on collaborative excellence.

Mutual of Omaha’s Wild Kingdom has now been supplanted by the Animal Planet, Discovery and Nat Geo channels — entire networks dedicated to the natural world. Each week, viewers follow naturalists – many with a death wish – as they plunge into our physical world to decrypt its mysteries and its symbiotic secrets for survival. It seems that many are realizing after all that the answers to our self-inflicted problems can be found in prosaic places like a mist covered spider web or a meadow composed of interdependent ecosystems.

The concept of biomimicry is not a new notion to engineers and product design professionals. The study of how nature copes with drought, erosion, infection and efficient cooling and heating have yielded insights that have been plagiarized by commercial, residential and industrial design innovators. Aside from physical design, ecosystem collaboration is finding its way into boardrooms as scientists and biologists educate overwhelmed executives on how to translate the examples of bio-diversity and collaboration to produce a superior result. True Darwinism simply reinforces the notion that the species that adapts, survives.

Organizational academics and biologists are challenging firms to think of themselves as diverse ecosystems that must optimize and collaborate across disparate communities of people, resources and infrastructure. They cite myriad examples of how nature offers us valuable lessons as a design collaborator. The age-old business maxim of strategy, structure, people, process and performance is being supplanted by thinking of business as a natural web of interdependent communities that can be optimized by processes and enabled by rewards that foster collaboration across an entire organization.

Collaboration may mean becoming less tolerant of high performance employees who are disruptive or consume too many resources that could be better allocated across a broader base of the firm. It means realigning incentives to drive behavioral change. Nature has an advantage over business in that it has no ego and is agnostic to profits. It merely seeks to perfect its ability to achieve symbiotic harmony so it might ensure and perpetuate its own existence.

AskNature.org offers individuals a hub where naturalists and scientists have incorporated hundreds of natural examples of how the physical world has optimized its bio-diversity and in doing so, shows us how teams collaborate to avoid waste, optimize resources and achieve results well beyond the capability of any one high performance individual.

The research, “Understanding the Biomimicry Taxonomy, provides a novel way for designers and biologists to collaborate and approach the next design challenge in a life-conducive way. The key to using the taxonomy is forming the question. Instead of asking how to make less toxic pigments, the designer can “ask” a Morpho butterfly how it modifies its color. Instead of using high pressure and temperatures to manufacture tough, lightweight building materials, an engineer can “ask” a toucan how it manages impact with its strong and light beak.”

Nature offers us thousands of examples of collaboration between parasites and hosts and symbiosis among the largest and the smallest of organisms. The clown fish lives within the poisonous tentacles of the anemone achieving security against predators by secreting a hormone that helps the anemone stay clean of parasites. Respect, humility, and the recognition of mutual dependence are attributes that are innate in nature but rare in Corporate America. Leadership must understand how these cultural catalysts must be promoted and rewarded to allow cooperation to evolve into full-scale collaboration.

Productivity gains will become the life blood of service industries in the next millennium. Gold medalist companies will distance themselves from silver and bronze medalist contenders by creating business environments that foster diversity and accelerated collaboration. Business leaders hungry to find ways to spark their human capital to achieve results that extend beyond their individual abilities need only turn to the Animal Planet.

True collaboration for the sake of adaptation allows any firm to navigate perilous markets, create knowledge networks that optimize resource sharing, and multiply its senses to understand what is required to fuel growth and survive in a digital age.

The best leadership will spend less time reading books on management theory and dedicate more time to examining how the distribution of water and resources is allocated among a forest in a drought. Symbiotic collaboration and biodiversity teach us that successful adaptation is not just about survival of the fittest but also about selflessness and the subordination of the individual ego for the collective benefit of the species.

In the end, Marlin Perkins and Mutual of Omaha’s Wild Kingdom were the best teachers. We learned time and again that those communities that support an ethos of common interest and the need to perpetually adapt do not just survive, they thrive.

As the Supreme Court debates the boundaries of government’s role in mandating the purchase of insurance, the discussion continues on whether the public or private sector is best positioned to drive market reforms necessary to meet our goals of lower costs and higher quality. As the son of a Phi Beta Kappa neo con who believes government should be the size of a sand gnat and as the husband to a British citizen who loves national healthcare and was born through a midwife, I often find myself lost in a political no man’s land with volleys being exchanged from the right and left. To complicate Thanksgiving dinner further, thirty years of healthcare consulting, including a three-year stint in Europe, hospitalization for pneumonia in the NHS and a tour of duty as a senior executive for a national insurer has left me with my own conflicted convictions about how we might fix our broken system.

On the eve of the Supreme Court determining the fate of PPACA, strong opinions are in full bloom like cherry blossoms along the Mall. In his particularly sharp remarks to government attorneys, Justice Kennedy, considered a swing vote by many, cautioned that Congressional intervention to mandate citizens the “duty ( to buy coverage) to act “ was a slippery slope that sets dangerous precedent and impinges on individual rights. Justice Roberts added, “And here the government is saying that the Federal Government has a duty to tell the individual citizen that it must act … That changes the relationship of the Federal Government to the individual in the very fundamental way.”

Justice Scalia was quick to wade in after Justice Roberts questioning, ” what would be next in the role of the government dictating to its citizens ( if the mandate were to be upheld). “I will tell you the next something else (we will next tell Americans to do) is exercise, because we know that lack exercise contributes to illness.” It seems that this debate is indeed creating odd bedfellows as civil liberties advocates are joining conservatives in warning that the next thing the government will be telling people is that they cannot drink sugary soft drinks or that they have to eat broccoli. It is hard to find a time when a conservative Justice and the ACLU share a common opinion about anything.

Private Versus Public – Who can Enforce Behavior?

If legislators and American business want to reduce the cost of healthcare and engage an entire generation of entitled Americans, the practical answer to Justice Scalia’s rhetorical question is “Yes. Justice Scalia. We must mandate personal responsibility for healthier lifestyles.”

Most Constitutional and human rights advocates would agree that the government’s regulation of the “commerce of healthcare” can become a snare that can tangle any government’s legislative foot in a cat’s cradle of complications. The need to legislate behavior in an effort to help reduce costs is simply a lap too far. A government dedicated to reducing costs while preserving quality and competition would need to adopt practices currently employed and bearing fruit in the private sector to moderate medical trend and improve affordability. The reality is many of these efforts – biometric testing, health risk assessments, population based plan designs, value based reimbursements – require a more prescriptive level of engagement by employees. While the programs are strictly voluntary, it is clear that the cost of declining to engage in health improvement will begin to create a substantial cost sharing gap between those who participate and those who do not.

How Public And Private Payers Seek To Control Costs Fundamentally Varies

Medicaid and Medicare recipients are largely unmanaged. Patients are free to access any provider who is willing to accept reimbursement and are generally not consistently under the care and coordination of a primary care provider. Fraud, overtreatment and instability among the chronically ill has led to extraordinary spending in public healthcare. Unengaged and vulnerable patients freely access a system that has found it difficult to close gaps in care, manage compliance or offer visibility on the where to receive the most efficient care.

In the private sector, larger employers have begun to achieve lower per capita health care costs and market reforms by implementing programs designed to impact the unit cost of healthcare and the consumption of services. In the face of the recent recession, the private sector moved rapidly to de-leverage, right-sizing balance sheets and returning to profitability. Larger firms have concluded that providing healthcare is neither a right nor a privilege but a benefit — an essential tool to attract and retain personnel. In providing this benefit, there is an assumed bilateral contract where each party takes responsibility for their role in health and healthcare.

Employers have done a poor job of enumerating expectations around personal health as many feel the idea of employment based health improvement reeks of Orwellian oversight. Additionally, wellness and health management only works where there is a culture of trust and communications — two commodities often in short supply in a business environment often reducing staff, freezing pay and struggling to achieve year over year earnings growth. Yet, firms have proven through the harmonic convergence of culture, communications and mutual accountability that medical trends can be reduced through health improvement.

The debate between public and private insurance inevitably breaks down when discussing how to best control costs. A single payer system relies primarily on global budgets, rationed access and reimbursement based on a complex clinical and financial calculus that balances medical necessity and cost. Inevitably, the specter raised is whether restricted access to quality care suffers when rationed reimbursement is peanut butter spread across all providers who often have highly variable outcomes. While every physician claims to have graduated first in their class, we know that some providers charge multiples of other providers but cannot clinically prove that their outcomes are significantly more favorable across a similar population. The private sector has figured out that open access PPOs that promise 90% reimbursement for any in-network provider is contributing to the very problem they are trying to solve – paying for quality outcomes, not for units of care.

There is a case to be made that market based reforms can and would do a better job of preserving quality by reducing not only unit cost prices but also reducing consumption of services and preserving quality. The question remains whether the private sector has the will to convert an entire generation of reluctant and at times, recalcitrant employees who see open access, non managed healthcare as an entitlement. Employers are now deciding whether they would prefer to take on the thankless task of redirecting employees and their dependents to narrower and more prescriptive primary care based networks or whether to drop coverage and abdicate the role of population health management to the government.

Several Supreme Court justices have already indicated that they do not believe government should play a broader role in regulating the “commerce” of healthcare. The question remains whether employers have the will and the skill to drive this process. Consider five reasons why the private sector needs to work harder to preserve employer based healthcare on the behalf of 180M working Americans. In doing so, employers could end up preserving a system that rewards higher quality care and achieves lower cost without imposing universal reimbursement rationing.

1. The Government Can’t Enforce Health Engagement. Many Employers Won’t. There is a difference. – 50% of all private sector claims are driven by less than 10% of an employer’s population. We know in many instances, these individuals develop chronic illnesses borne out of poor lifestyle choices. The issues are difficult to solve for and are complicated by socio-economic issues such as lack of access to primary care, lack of access to healthier diet alternatives and a lack of education about the consequences of poor lifestyle choices.

Medicare and Medicaid do not have the means nor the ability to drive lifestyle based incentive plans or more prescriptively direct care for their recipients. Less than 15% of Medicare is managed and those recipients are covered under Medicare Advantage plans that are driven by commercial insurers. For Medicare to make advances, it would need to partner more closely with the very constituency that it vilified in an effort to get reform passed – managed care companies. Meanwhile states are turning to managed care to help mitigate costs and improve care quality. Medicaid costs are ballooning and without the ability to improve public health, better dictate access points, close gaps in care and manage the intensity of services being rendered while a patient is in the medical system, the public sector can only ration cost as a means of achieving cost management.

2. Employers can design plans to reward engagement and health improvement – Employers are now committing resources to population health management – – conducting biometric tests, requiring health risk assessments, implementing rewards based plan designs that offer lower costs and richer benefits for engaged employees. The result has been behavioral shifts that are fundamentally changing the way employees access care. The combination of better tools to understand the variability of provider costs for similar procedures, education, rewards and disincentives have all combined to lower trends for many employers committed to driving loss control for healthcare. The challenge for employers is true engagement requires time and resources.

3. The Brokerage Community Has Done a Mediocre Job in Managing and Resourcing Health Improvement for Employers. If you subscribe to the maxim that there are no bad students, only bad teachers, the sluggish move toward population health management, self insurance and aggressive loss management programs has as much to do with the limited intellect and resources of those advising employers as it does the employer themselves. In the new normal, brokers must become advisors and have access to actionable data analytics, clinical resources, underwriting and actuarial services to more effectively forecast and show a return on investment for health. The golden age of low transparency, limited access to claims experience, opaque premium and embedded broker remuneration is ending and giving way to an era of accountability where advisors will be paid for value and less for bedside manner and low value administrative support services.

4. The Key To Quality is Reducing Higher Health Costs that Do Not Correlate to Better Outcomes – Employers have a lot of ground to make up. After rebelling against HMO plans that had achieved close to zero trend in the mid-1990s but achieved it primarily by focusing on aggressive medical management and redirecting patient’s to lowest unit cost providers, employers demanded a more laissez faire system of access and oversight for employees. Choice and minimal third party intervention was the mantra which resulted in happier employees and annualized trends that swelled like waistlines to over 14%. As premiums soared, insurers and broker remuneration increased.

Over the last two decades, many employers have gravitated to larger, open access PPO networks that offer a wide range of provider choices for employees and also highly variable charges for similar procedures. To complicate the need for consumer engagement, these variable charges are normally reimbursed at the same co-insurance or co-pay level – as long as they are incurred in network. Often, the most expensive providers are perceived to be the best. Employers must commit to narrowing networks and measuring quality based on outcomes over an entire episode of care.

The public sector equally rations reimbursement across all providers irrespective of outcomes or unit cost, shifting the burden to find a quality doctor to the patient. The ability to reward quality with higher reimbursement while forcing greater transparency in outcomes and costs to better understand who is actually delivering the best care can only be achieved through extensive analytics and an employer’s willingness to begin to reward utility of better providers. While CMS has committed to pilot programs to begin to drive this migration to quality, the private sector has the ability to move more rapidly – but only if employers are willing to tolerate the disruption that this may visit on employees who prefer the status quo.

5. Rationed public reimbursement leads to cost shifting which undermines provider quality and accelerates lack of affordability in private healthcare. Peanut butter spread reimbursement rewards mediocrity and creates the incentive to drive a higher volume of services to make up for rationed reimbursement. As doctors and hospitals receive less from state and federal reimbursement, they will naturally attempt to shift these wholesale arrangements to retail commercial customers. As medical trends spike in commercial health insurance, premiums become increasingly unaffordable with more employers choosing to drop coverage. Private employers already pay an estimated $1.22 for every dollar of healthcare to compensate providers for public sector underreimbursement. The cycle eventually leads us to more employers dropping coverage and a larger and larger population of uninsured workers. With 50M uninsured, a call has rung across the land for public policy intervention to solve for the crisis of affordability and access. Not unlike Dorothy in the Wizard of Oz, employers have always had the ability to reduce costs but have chosen to pass on cost increases and reduce benefits instead of tackling the more difficult and disruptive process of driving payment reforms and behavioral change.

It’s Now or Never– While CMS is attempting to change reimbursement methodologies to reward higher quality outcomes and to penalize poor management of services such as infection and readmission rates, the private sector still holds the trump card being able to drive more onerous consequences for poor medical delivery. Determining medical necessity and driving reimbursement reform is tricky business and often disintegrates into political food fights as evidenced by contracting disputes that often arise between payers and providers.

When it comes to refusing to cover certain procedures or penalizing outlier behavior, commercial insurers find it increasingly more politically expedient to wait for CMS to change policy on Medicare reimbursement to provide air cover for their own policy changes. Historically, it has been in vogue for employers to blame insurers for certain reimbursement practices rather than take responsibility that payers are merely administering the employer’s plan document. Employers need to own their medical spend and they need to reinforce with their employees the bi-lateral agreement that comes with financing care. In the face of mounting pressure to reward engagement in the workplace, consumer advocates are now complaining that employers are becoming increasingly too prescriptive about population health management. Personally, I support the view of Steve Sperling of Hewitt who recently retorted to criticisms about employer driven health incentives, “House money, house rules.”

The healthcare system is changing as we debate the need for change. The tectonic plates of hospital and provider delivery are shifting causing great upheaval and alterations in the strategies of large systems, community based hospitals and across a range of stakeholders. According to a recent Credit Suisse report, the US still ranks at 150% of the unit cost of services and a full 60% higher than other industrialized nations for overtreatment/consumption of services. While we can boast higher cancer survival rates and a system of R&D that props up the innovation occurring across the globe, we are not getting enough value for our spend. It is unsustainable. The Supreme Court now has the dubious honor of killing or upholding PPACA. Irrespective of the outcome, private employers are our best chance to help fix the problem.

Given the nature of politics and the nature of human behavior in healthcare, it’s my belief that government can fix the cost problem rather quickly but would likely throw the babies of quality and public health improvement out with the notion of private reimbursement. The private sector has the green light to drive market based reforms that can reduce pricing variability, reward quality and improve public health. However, it’s a tall order at a time when companies are seeking to reduce administrative costs, are focused on the business of the their business and are lacking the will to burn social capital with workers by playing Big Brother when it comes to health improvement.

In one scenario, the government may want to reduce healthcare spending but really, at the end of the day, the Supreme Court is saying “you can’t. ” In the other case, employers have a golden opportunity to step up and start demanding value for their spend and force greater transparency and conformity around health improvement. But up until now, they won’t.

The scene opens with a fit, thirty-something man running down the hallway of an office building. His white shirt is stained on right side by what appears to be orange juice. He frantically looks behind him to see if anyone is following him and knocks over a female colleague – spraying papers into the air. He spins, tumbles, hesitates and then runs through a door marked, “ Human Resources – Compensation and Benefits”

He bursts into an inner office where a 50ish woman is on the phone – laughing. She frowns glancing at him as he shuts the door and peers between her Levolor blinds.

Carol: (Covering the phone) What the hell are you doing, Johnson ? Aren’t you supposed to be downstairs conducting the annual benefit enrollment meetings?

Johnson (Terrified, turning to show his stained shirt) : Are they coming? Did you see anyone? Those five women – you know the ones who go walking every day at lunch – one of them threw an orange at me right in the middle of my presentation.

Carol: (Swivels in her chair, turning her back on Johnson and is about to speak into the phone when she sees all her phone console lines blinking at once. Her cell phone begins to vibrate in her purse. She speaks into the phone)

Tim, let me get back to you. Something seems to be going on here at Corporate. (she hangs up and let’s her phone start to ring. )

Cindy grab those calls will you? (she glances at her cell and sees it is her West Coast HR representative. She holds up her hand to Johnson who is about to say something) Shhh! I have to take this cell call. (She answers the cell)

Phil, I hope this can wait. I have a …..

( She listens intently as a barely audible voice is whispering on the other line )

Phil, I can barely hear you. (frowning again) You’re where? The women’s bathroom – – in a stall? Phil, I don’t need to tell you that. What? Who is after you? Well, did you call security? What do you mean, the elevator is not working? The security guard says it’s too far to climb eight flights of stairs?

(She listens and stands up. She looks out her front window and notices that several employees in suits are doing push ups and jumping jacks in the parking lot. There are signs being removed from the back of a truck that read, “ Lower Your Cholesterol, Lower My Cost for Health Insurance”, “ That Donut You’re Eating Just Cost Me $50.00”, and “Cut Your Risk Factors, Not My Benefits.”

What the hell is going on? What? No Phil, I was not talking to you. What happened? At your enrollment meeting? Flesh mob? Flash Mob? What did you….Vending machines? A glasscutter?….Only the candy bars and chips? Apples? How the hell did someone smuggle 500 apples into the office without us seeing them? Every desk? What? ‘An apple a day, keeps your colon okay?” Who the hell wrote that?

A flustered secretary opens the door and Johnson hides under her desk with his butt sticking out of the narrow opening. Carol looks down and barks.

“ Johnson, for God’s sake get out from underneath that desk. Cindy, WHAT IS IT? “

Cindy (talking very quickly): Every HR representative is calling from the field. Apparently, during the open enrollment session this morning, there was a coordinated protest over our raising premiums and decreasing benefits. Several people removed their business suits and were wearing workout clothes. They started exercising and chanting inappropriate slogans about how this company does not care about employee healthcare. Someone turned over all the vending machines in St Louis. A group of CSRs in Dayton who conduct Zumba classes every day at noon have demanded that we do biometric testing on all the people working in the call center. They seem to have somehow figured out that all of our big medical claims came from several people who have not seen the doctor in years.”

Carol looks out the window and sees an overweight security guard trying to take a sign away from a younger, much thinner man in a track-suit. The young man is taunting the guard and running just ahead of him until the guard stops and places both hands on his knees and throws up.

Carol (talking to herself): This is getting out of hand. Ok, has anyone been hurt?

Johnson ( muffled, still under the desk ): I told you that this was a problem. I told you. Just look at Safeway. They found that 66% of their diabetics were not compliant with their own treatment regimens. They cut premiums for people who engage. raising premiums for people who refuse to make lifestyle changes. Driving employee engagement. Remember that note I brought you that someone had left next to all those cookies in the lunchroom? It was a warning from this, whatever they call themselves – wellness terrorist group. It said, “If your LDL is over 130, don’t even think about it.” Remember, you thought it was some kind of a joke? Well, what about the sticky note on Larry’s (the CFO’s) door: “Dear Larry, ever thought about the relationship between a lap band operation and operating income?” Think about it, Ms. Whiffler. It all makes sense. This is a wellness rebellion!

Carol: (disgusted) Get a hold of yourself, Johnson. This is not the Russian Revolution. It’s a coup of those exercise nuts we see running and walking every day. They are trying to get us to spend a lot of time and energy on something that can’t be proven to show an adequate return on investment. I mean have you seen the call center staff in New Hampshire? Do you really think we are going to change these people’s lifestyles and get them to stop smoking and overeating? Have you ever seen what happens when we put any free food in that lunch room? I mean I could put dog dirt on that table and if it said ”free”, someone would eat it.

(Carol suddenly remembers the king-sized Butterfinger bar she has in her desk drawer. She sighs and thinks: what I would not give to eat that baby and take a nap. The phone rings. Cindy looks at the console. She glances up)

Cindy: It’s Mr. Lawson on line one (the Chief Financial Officer )

Carol: Ok, nobody panic. (looks at Johnson and hisses ) and no more talk about fitness mutinies and exercise insurrections. (Picks up the phone and composes herself) Hi, Larry. What can I do for you? (A loud voice penetrates the entire office out of the handset) What? Oh my. Well, yes, I….No, I did not know someone left that note on your door until a few days ago. What? What did this one say? (she stops and tries to suppress a smile) A manatee? Oh, yes, now I remember – the large, endangered mammals in Florida?…..No, I do not think they were threatening you by choosing to compare you to an endangered species…..Absolutely, we will fire the person on sight if we can find them. Yes, yes, ok…I will circle back to you in a few hours. We seem to have some issues with the employees around the benefit plan cuts and premium increases. (more yelling)

Yes, I think they understand we have a new private equity owner who expects us to improve earnings. Yes, better cutting benefits and increasing contributions than reducing the workforce. No, I don’t think they know how thankless our jobs are. (She glances at Johnson who has now emerged from under the desk. He is rolling his eyes and sticking his finger down his throat and pretending to gag. She gives him a sharp disapproving look. ) Yes, yes, right away.

Johnson: You know he could stand to lose about 50 lbs. I bet he thinks BMI is a kind of foreign car and that a Statin is a Borough of Manhattan. He’s the one who stopped us from reducing the PPO network and implementing some of those changes that would have redirected people to lower cost, higher quality hospitals – all because his doctor was not in the narrower network.

Carol looks out the window. Over 50 people are engaged in an impromptu Zumba class. Three overweight security guards are seated watching them in a golf cart. One is drinking a Coke and smoking.

Carol: Well, he is the boss.

Johnson: Yes, a boss that dropped on our heads like a 300 lb wrecking ball.

Well, boss, what are you proposing we tell everybody around the country? We have HR reps hiding in bathrooms. The “Fitness Taliban” in control of a half a dozen offices. I can count the lawsuits now from our overweight employees claiming a hostile work environment. (Imitating Keifer Sutherland’s character Jack Bauer in “24” ) Well, Madam President, what is our next move? Your team is awaiting further instructions.

( Silence. Johnson continues) You know, if we had just dug in our trainers around biometric testing, penalties for smoking, incentives for wellness and compliance based rewards to make sure people adhere to their chronic illness medications, we could have prevented this mutiny.

Carol: (Irritated) Quit using that word. Who the hell is going to do all this testing and keeping track? You? Me? We just fired four HR reps. We have cut our budget and we now have the lowest ratio of HR/Benefits staff to employees in our industry. The sad truth is, Johnson, it’s easier to pay the increased costs and then pass them on to all employees then try to get them to change. We are in the business of selling HR and payroll administration systems, not the business of trying to get someone’s spouse from eating Oreos.

Johnson: Well, I’m telling you that our costs have increased 50% in the last three years and we have passed on 80% of those increases to our people. Wages have increased by about 12% in that same period. My guess is most people’s take home pay has been consumed by our new high deductible plans, increased cost sharing and new drug plan formulary. They are pissed off.

Carol: So, what do you propose, Mr Bleeding Heart?

Johnson: Actually, my heart is in great shape. Cholesterol? 145. Triglycerides? 110. Fasting glucose ? Less than 80. I run three days a week and I have given up dairy. Cherie (his girlfriend ) has just turned vegan.

Carol: ( Rolling her eyes) You sound like one of those P90X terrorists.

Johnson: Well, if the shoe doesn’t fit, then you can’t wear it. Look, I say, we immediately circle back to all employees and tell them that we have heard them. We can easily launch a voluntary biometric plan for our renewal and offer to hold premiums flat for those who participate. For those who choose to not get tested, they will pay the increased cost of coverage.

We can get our insurer to pay for the testing and use the penalties to offset the partial costs of the increase. We then meet with Larry and Ron (the CEO) and show them a five-year pro forma of our current medical trends and the impact of us reducing medical trends by 3% each year. Those guys understand profits. Every dollar saved times a 10X multiple is money in their pocket when we go public.

We pay over $ 15mm in claims. The savings of a lower compounded medical trend, reduced catastrophic claims, improved productivity and morale will more than make up for the “hassle factor.” Quite frankly, those that consider healthy living an imposition are probably the same ones back at their desks today eating Krispy Kremes while the healthy employees are protesting. If we can just find people who are sick and don’t know it and stabilize those that are chronically ill by reducing financial, physical or mental barriers to care, we would be a great shape. (He smiles) No pun intended.

Think about how we nickel and dime our people on travel and other administrative costs, yet we completely ignore these rising costs because we find it easier and less “disruptive” just pass to them on to the employees. Well, guess what? They are telling us, enough is enough. We have to do something different and be more responsible. You cannot engage employees if your management is not engaged.

Carol: (looking out the window. One of the security guards has joined the Zumba class while the other two have left the parking lot on foot leaving the golf cart behind) Okay, call all the reps and let’s have an emergency follow-up meeting this afternoon. Dust off that proposal from the insurer and our broker and let’s put some numbers around it.

Johnson smiles approvingly and leaves her office. She shuts the door and falls back into her chair. A button pops off her blouse and she shakes her head, feeling sorry for herself. She remembers the Butterfinger and opens the drawer. She glances at it and then picks it up. She stands and goes to the window. She tears open the wrapper.

She turns and decisively walks out to her secretary’s desk. She drops the candy bar in the waste can.

Christmas is the time when kids tell Santa what they want and adults pay for it. Deficits are when adults tell government what they want and their kids pay for it. ~Richard Lamm

The day after a mid-term tidal wave of anti-incumbency sentiment swept through Congress resulting in the GOP reclaiming a controlling majority in the House and closer parity in the Senate, a seemingly contrite President Obama took personal responsibility for his party’s dismal showing at the polls. In a carefully worded conciliatory message, the President shared that, “the American people have made it very clear that they want Congress to work together and focus their entire energies on fixing the economy.”

Newly minted House Majority leader, John Boehner, subsequently reconfirmed that the GOP would not rest until Congress had reined in government spending. This would be partly achieved by deconstructing the highly unpopular and “flawed” Patient Protection and Affordable Care Act – a “misguided” piece of legislation that would actually increase costs for employers thereby reducing the nation’s ability to jump-start an economy that relies on job creation and consumer spending. In Boehner’s mind, government is not unlike the average American, overweight – it’s budget deficits bloated by the cost of financial bailouts, Keynesian stimulus spending and failure to discuss the growing burden of fee for service Medicare.

The President’s failure to acknowledge healthcare reform in his speech was interpreted by many as deliberate and only served to cement the perception that in Washington, it will impossible to have constructive dialogue around the imperfections and potential unintended consequences of PPACA. The White House’s resolve to defend its hard-fought healthcare legislation is likely to extend the polarizing partisanship that has come to characterize Congress. The impasse may very well spark a two-year period of bruising, bellicose finger-pointing over how to fix rising healthcare costs.

The absence of a veto proof majority leaves the GOP in a position of holding high-profile hearings and tendering symbolic legislation designed to expose PPACA’s limitations and its failure to address the core problem – medical inflation and its principal drivers. The Obama administration and a Democratic Caucus will work to redirect legislative attention to the economy while working to protect the core elements of their health legislation – expanded and subsidized access for some 30M Americans, tighter regulation of insurance coverage and underwriting and an ambitious expansion of the role of Health & Human Services as a national oversight agency. It seems that “reforming” reform may end up unlikely inside the Beltway setting the stage for regulatory skirmishes across state legislatures. We may very well look back on this period leading up to the 2012 Presidential elections as “The War Between The States”.

Healthcare civil war will result in intense competition for dollars. Internecine fighting will flare across all lines – – between primary care physicians and specialists, community and teaching hospitals, brokers and insurers, employees and employers, as well as state and Federal regulators. Every stakeholder believes they are part of the solution, adding integral value to healthcare delivery. Meanwhile consumers cling to the notion that the best healthcare is rich benefits delivered through open access networks where no administrative obstacle gets in between the consumer and the care they believe they need. The question becomes who is fit to referee and regulate this highly radioactive food fight.

PPACA MLR Regs May Reduce Competition – Recently promulgated Minimum Loss Ratio (MLR) legislation will spark a fundamental shift for insurers as they are forced to underwrite locally and account for profits exclusively by license and by state. In higher loss ratio markets, insurers will need to price to their true cost of risk creating the potential for market volatility. In the past, regional and national insurers routinely redirected profits from lower loss ratio markets to subsidize higher MLR markets. This was particularly true when carriers were entering expansion markets in an attempt to create more competition. New markets generally meant poorer medical economics for insurers who did not have enough membership to negotiate favorable terms with providers. This led to premiums priced to higher loss ratios and lower profit in an effort to gain market share and increase competition.

With final MLR regulations imminent, competition in certain markets may diminish as smaller market share insurers no longer have the patience or economic staying power to build membership. If the threat of high loss ratios persisting in markets where rate increases cannot be approved, an insurer may attempt to withdraw from less profitable lines of business or a particular geographic market prompting a rebuke from a local insurance commissioner or HHS. Insurers will now be constantly weighing the cost/benefit of a public fight that may taint their ability to do business in an entire state.

A New Type of Non Profit Insurer ? – In the Midwest, a different battle is brewing as Health Care Service Corporation (HCSC), the powerful Illinois based non-profit Blue, is drawing criticism from consumer groups over its $6B war chest funded by accumulated reserves – reserves that some claim are well above the necessary statutory limits and should be used to reduce premium increases. Within historical market cycles, non-profit insurers and their reserves have played an important role in moderating medical costs as a non-profit can spend down excess reserves and in doing so, initiate a competitive pricing cycle that squeezes for profit competitors in select markets. Wall Street analysts closely follow insurer pricing cycles often portending lower managed care industry profits when non-profit insurer reserves reach too high a multiple of required reserves.

As hospitals and doctor groups consolidate and the supply side of healthcare repositions in the face of inevitable changes to reimbursement, non profits are recognizing that size and bargaining power matters. In a departure from normal excess reserve driven pricing, HCSC is building reserves, perhaps out of conservatism over an uncertain future or because they are looking for an opportunity to acquire another non-profit.

Should HCSC use excess reserves – essentially profits accumulated in four states – to potentially acquire a non-profit in another state, some regulators and consumer groups may argue that these reserves should be rebated to policyholders. When a non-profit chooses more conservative reserving, they give for profit competitors a potential pass from the pressure of having to moderate premiums. Non-profits play a vital role but are not without their perceived warts. While clear exceptions exist in many markets, criticism of non-profit insurers is often leveled at their utility-like behavior – – limited innovation, bureaucratic insensitivity to customer service and waste. As these non-profits become tougher and more formidable, they will begin to emulate certain for profit behaviors intensifying the debate in state legislatures over the nature of for profit and not-for-profit insurance.

Some states may condone non profit excess reserving practices – especially if there is a plan for non-profit to for-profit conversion. In these cases, a trust is established to convert the non-profit’s reserves to state control, presumably to be used to impact areas regarding public health. Given that 80% of every state’s budget is dedicated to either “education, incarceration or medication”, a non-profit conversion can be a boon for a cash strapped state. Losing a non-profit local insurer to for profit status is hard to explain to consumer advocates pushing for more competition among insurers but easier to ensure reelection by using one time windfalls to finance staggering state budgets.

Medicare Cost Shifting – As reform imposes restrictions on insurer loss ratios, it is also poised to shift more costs to the private sector through Medicare fee cuts – cuts that are expected to generate $ 350B of the estimated $940B of revenues required to cover the $800B price tag of PPACA. Congress, nervous over mounting evidence that added underfunding of Medicare reimbursement would only reduce access to medical services for seniors, has chosen to further delay these cuts in legislation. The stop-gap delay on cuts known as “Doc-Fix” will challenge the upcoming lame duck session of Congress. The moratorium on cuts expires in November, 2010, leaving the newly comprised Congress to wrestle with the highly unpopular consequences of further cutting Medicare. Given that fee for service Medicare costs continue to spiral out of control, each month that Congress fails to pass these fee cuts reduces revenues earmarked to offset the costs of reform – – potentially turning PPACA from a bill that sought to reduce the public debt by $ 140B to a bill that would further increase our national debt by as much as $ 300B.

Regulatory Debates Over Premiums for Indivduals and Small Business– Healthcare civil war will further inflame as public spending in Medicare and Medicaid reimbursements are reduced – causing providers to cease accepting patients, ration access and/or cost shift more to commercial insurance. Medicaid already reimburses providers less than 70% of retail costs of care followed by 80-85% by Medicare. Commercial insurance picks up this cost shift currently paying $1.25 for similar services with the most disturbing costs of $2.50 being charged to any uninsured patient uncovered by public or private care. With the new public spending cuts, commercial and uninsured care costs are likely to rise higher. Some insurers estimate unit costs likely to increase to as much as $1.40.

As rising unit costs result in higher medical loss ratios, insurers will raise rates – prompting more state conflicts with regulators seeking to manage the optics of rising insurance premiums for individual and small business. New MLR regulations will require extraordinary underwriting precision as conservative pricing will result in lost market share or the potential for large premium rebates while under-pricing premium will result in the need to raise rates higher and in doing so, risk high-profile battles with regulators as they weigh the political optics of allowing proposed increases. In at least half of US healthcare markets, states have prior approval rate authority allowing them to effectively prevent insurers from collecting premiums required to cover loss ratios in excess of the newly mandated 80 or 85% loss ratio limit. History has taught us that price controls are effective political but ineffective economic levers to address underlying cost inflation.

The first shots of the rate adequacy debate have already been fired in California, Colorado, Maine and Massachusetts — all markets who represent a perfect storm of rising medical costs, budget deficits and a firebrand belief that insurers should be highly regulated, non profit utilities. The result has been a rising war of words over the right balance between rate regulation and historical profit margins of insurers.

The seeds of civil war were buidling for a decade prior to the passage of reform. Some industry observers attribute the ill-timed efforts of Wellpoint California to collect a requested 39% increase on its individual lines of business as the spark that rekindled Federal reform. While the loss ratios in their Individual Medical line of business had clearly deteriorated as a result of declining economy and a loss of healthier membership, Anthem/Wellpoint failed to think across its entire book of business – an insured multi-line block where small group, Medicare Advantage and other lines of business were all generating profits. The failure to correctly understand the enterprise risk of raising rates – despite their actuarial justification, cost Wellpoint/Anthem and the insurance industry dearly as calls for reform rekindled across the US. Wellpoint has subsequently resubmitted lower requested rates, accepted higher loss ratios in its individual line of business and taken a hit to earnings.

A Social Contract with States – The for profit insurer conundrum is clear. Providing health insurance carries with it an implied covenant within every market in which an insurer does business. This social contract suggests that insurers and other for profit stakeholders must be actively demonstrating community stewardship, andthat they are improving the health system, not merely benefiting by its dysfunction. Responsible stewardship is also in the eyes of the beholder – – in this case, regulators, politicians, pundits, consumers, and a range of stakeholders. In the upcoming battles that will wage within each state, it will become increasingly relevant in the court of public opinion that how one makes money in healthcare is as relevant to policymakers as to how much one makes.

A low pressure system is already building over New York, California, Rhode Island, Massachusetts and other blue states as they begin to re-assert their regulatory authority to support federal oversight of healthcare. Red and blue politics now matters as states will be either guided by an ethos of “healthcare is a public/private partnership anchored by employer based healthcare and consumer market forces that drive quality and efficiency” or a mindset that “healthcare is in need of radical reform – reform that begins with PPACA and most likely ends with a single payer system acting as the catalyst to drive the least politically palatable phase of healthcare — rationing of resources.”

A Ray of Sunshine ? – There may prove to be a silver lining if certain states become incubators for successful alternative models of delivery. States quick to embrace medical home models that expand the role of primary care providers may make faster strides to control readmission rates, formulary compliance and emergency room overtreatment. Additional local regulatory reforms could include all payer reimbursement reform which levels in-patient reimbursement among all payers. There is a need for expanded malpractice reform and a tolerance of compliance based designs that hold those seeking access to subsidized care accountable for greater personal health engagement.

The battles will wage up to the 2012 Presidential elections – – a vote that could very well determine the future of healthcare in America. A Democratic administration is likely to cement basic reforms into place and further placing near term faith in expanded access highly regulated insurance exchanges, rate regulation and the potential trigger of a public option if private plans are unsuccessful in taming medical inflation. A 2012 GOP win would likely mean revocation of individual mandates, a scaling back of the role of exchanges, greater incentives to preserve employer sponsored healthcare and a focused but modest expansion of Medicaid to cover those most in need of a core level of coverage. The GOP and Democrats alike face a common challenge of tackling soaring fee for service Medicare costs and the eventual need to reshape a healthcare delivery system that is rewarded for treating chronic illness not preventing it.

Most states will be agnostic to the presidential elections, choosing to continue to pass regulations if they feel reforms are falling short of dealing with local access and affordability issues. Only larger employers in self insured health arrangements will avoid the crazy quilt of shifting multi-state regulations.

Robert E Lee once remarked, “it is good that war is so horrible, ‘lest men grow to love it.” As with war, the politics of reform is a zero sum game. Achieving savings means someone in the healthcare delivery system makes less money. The war over healthcare reform will not be popular nor easily understood. Every American will be impacted. Fear and misinformation will rain over the battle field like propaganda. Yet, if we could agree on a guiding vision – improvement of public health, personal responsibility, elimination of fraud and abuse, torte reform, the digitalization of the US healthcare delivery system, the preservation of our best and brightest providers and a system built on incentives to reward quality based on episodes of care, perhaps we may achieve a public/private détente where we focus less on vilifying and more on healing a system, it’s consumers and our unsustainable appetites.

Michael Turpin is Executive Vice President and National Practice Leader of Healthcare and Employee Benefits for USI Insurance Services. USI provides a range of business and risk brokerage, consulting and administration services to mid-sized and emerging growth companies across the US. USI is privately held and is a portflio company of Goldman Sachs Capital Partners. Turpin can be reached at Michael.Turpin@usi.biz

As the first snowflakes of change fall on the eve of health reform, HR professionals may soon wake up to an entirely transformed healthcare delivery landscape. The Patient Protection and Affordable Care Act (PPACA) clearly will impact every stakeholder that currently delivers or supplies healthcare in the United States.

While the structural, financial, behavioral and market-based consequences of this sweeping storm of legislation will occur unevenly and are not fully predictable, this first round of healthcare legislation is designed to aggressively regulate and rein in insurance market practices that have been depicted as a major factor in our “crisis of affordability” and to expand coverage to an estimated 30 million uninsured. However, fewer than 30 percent of employers polled in a recent National Business Group on Health survey believe reform will reduce administrative or claims costs.

Yet, it is unlikely that reform will be repealed. For all its imperfections, PPACA is the first in a series of storm systems that will move across the vast steppe of healthcare over the next decade resulting in a radically different system. Whether reform concludes with a single payer system or emerges as a more efficient public-private partnership characterized by clinical quality and accountability remains obscured by the low clouds and shifting winds of political will. One thing is certain during these first phases – inaction and lack of planning will cost employers dearly.

As the U.S. government struggles to rein in an estimated $38 trillion in unfunded Medicare obligations, the private sector and commercial insurance will feel the weight of the government’s efforts to reduce costs and impact our $12T of public debt. HR professionals will have to act thoughtfully to insulate their plans from the inflationary effects of regulatory mandates and cost-shifting.

So while many HR professionals are getting hit from all angles – finding it difficult to continue to transfer rising costs to employees, unwilling to absorb double-digit trends, under-staffed to intervene in the health of their populations and uninspired to assume the role of market catalyst to eliminate the perverse incentives that reward treatment of chronic illness rather than its prevention – they must forge ahead to address the intended and unintended impacts on the estimated 180 million Americans covered under their employer-sponsored healthcare plans.

To prevail over the elements, one must have a map and a flexible plan. It also helps to have a qualified guide. Consider the following as you brace for the “new normal.”

Think Twice When Someone Suggests Dumping Health Coverage – Many smaller and razor-thin margin employers will be tempted to drop medical coverage and pay the $2,000 per full-time employee penalty – essentially releasing employees to buy guarantee-issue coverage through health exchanges, which will be available in 2014. Aside from impacting employers’ ability to attract and retain employees (consider how many of your employees will fall into the class of individuals eligible for federal subsidies), the assumption that the $2,000 will remain the baseline assessment per employee for those choosing to not offer coverage is a dangerous variable. While it is clear that PPACA as it is currently constructed creates obvious incentives for employers to drop coverage and allow those eligible for federal subsidies to purchase through exchanges, it is unclear how the government can continue to subsidize proportionate contributions on behalf of those buying through exchanges when costs start to inevitably rise. The General Accounting Office ( GAO) has already forecasted an increase of almost $500B in cost due to rising costs of subsidies as medical costs trend upwards. The forecasted CBO savings of $140B versus the GAO’s estimates of a $500B increase in costs have yet to be reconciled. Whether the $2,000 penalty was intentionally set low to entice employers to drop sponsored coverage and move America one step closer to a national system, or whether someone from the CBO missed a decimal, we expect the employer penalty for dropping coverage to increase as costs rise. Employers should be certain to model their own costs to subsidize minimum levels of coverage today against an uncertain future of variable taxes that will only increase to fund coverage subsidies.

Pay attention to Section 105(h) now. – Many employers may be unaware that self-funded plans that discriminate in favor of highly compensated employees must comply with Code Section 105(h) non-discrimination rules. As of the first plan year following September 23, 2010, these rules now will apply to non-grandfathered, fully insured plans. Insurers may choose to exercise their right to either load rates for potential adverse selection or decline to quote because employers have failed to meet minimum participation percentages. Section 105(h) testing is critical for industries, such retail, hospitality and energy that historically have excluded various classes of rank-and-file employees or provided better contributions and/or benefits to their top-paid groups. Penalties for not complying with the new regulations are $100 per day per employee.

Understand the sources of cost shifting pressure – As Congress and state governments wrestle with Medicare and Medicaid reimbursements and begin to focus on fraud, over-treatment and accountability for clinical outcomes, providers will feel the increasing pinch of reimbursement reform and will pivot in the direction of trying to shift costs to commercial insurance. Physician hospital organizations (PHOs) and other integrated healthcare delivery systems – where health systems operate primary care, specialty and inpatient care – are accelerating – giving more clout to providers in contract negotiations and increasing commercial insurance unit costs, potentially exacerbating already conservative insurer claim trend assumptions. HR professionals will need to better track employee utilization patterns for in-patient facilities especially in high-use urban and rural commercial hospitals that also derive a large percentage of their revenues from Medicare. If a hospital derives 60% of its revenues from government reimbursement and 40% from commercial insurance, proposed fee cuts will impact facility revenues and create pressure to cost shift to private insurance. An understanding of hospital utilization and consideration of tiered networks can help insulate your plans and drive lower costs.

Don’t be intimidated by self-insurance – Many employers underestimate the advantages of self-insurance and overestimate its complexity and risk. But, in a post reform world, firms with more than 200 employees should give serious consideration to partial or total self-funding. Aside from the total transparency of commissions, fees, administrative expenses and pooling charges, employers own their own data. The sooner employers get comfortable with self-insurance as a risk financing strategy, the sooner HR professionals can construct loss control programs that can mitigate claims costs. By self-funding, employers may better manage their population’s health risk; may avoid a myriad of state-based mandates legislated to fund potential shortfalls should local exchanges prove inadequate to contain costs; and may increase flexibility with respect to plan design. Be certain to understand the economics of your self insured arrangement. A cheap third party administrator with weaker provider discounts and limited medical management capabilities ultimately costs you much more than services provided by a national insurer with better discounts. In other cases, insurers may have more than one PPO network and assign the less aggressive discounts to their self funded TPA based clients. Make sure you press for the best possible discounts.

Forget Wellness – Think Risk Management. – Wellness has become a broad-brush term to describe any sponsored effort at health improvement. Forget wellness. Population risk management (PRM) is the operative term to describe a process of understanding embedded health risks and structuring plan designs to remove barriers to care and keep people healthy. PRM requires access to clinical data, cultural engagement and designs that have consequences for employees who do not engage. If employers do not understand the risk within their workforces, it is impossible to improve results or be confident that plan changes will drive a desired result. For example, more than 50 percent of claims arise out of modifiable risk factors and as few as five percent of employees drive 50 percent of claims. The great news is PPACA actually increases employers’ ability to charge up to 30 percent more in premium for individuals who do not actively get and stay healthy. Also, employers that establish comprehensive workplace wellness programs and (1) employ less than 100 employees who work 25 hours or more per week and (2) do not provide a workplace wellness program as of March 23, 2010 can take advantage of available government grants.

You are the “market forces” everyone keeps talking about and you need to use this power to influence on-going reform. – Employers purchase healthcare for more than 180 million Americans – about 60% percent of all individuals who have healthcare coverage, but ironically feel less empowered, informed or in control of their spending or their employees’ behavior as they access the system. HR professionals must become activists for public health improvement and change – promoting healthy behaviors, transparency and accountability while putting an end to public-to-private cost shifting, overtreatment, fraud, abuse and clinical variability. Congress will only listen to employers because the other stakeholders have a perceived conflict of interest in how health reform is ultimately resolved. Employers must build up the courage and resolve to begin to reshape the local, regional and national delivery models that result in overtreatment and lack of accountability for poor outcomes.

As we look out the window, the full force of reform is still swirling somewhere off in the distance. As business hunkers down and adopts PPACA legislation, the question for many in HR is simply – will reform happen for me or to me?

Michael Turpin is Executive Vice President and National Practice Leader of Healthcare and Employee Benefits for USI Insurance Services. USI provides a range of business and risk brokerage, consulting and administration services to mid-sized and emerging growth companies across the US. USI is privately held and is a portflio company of Goldman Sachs Capital Partners. Turpin can be reached at Michael.Turpin@usi.biz

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” Charles Darwin

In her 1969 Book, On Death and Dying, Dr Elisabeth Kübler-Ross describes the five stages of grief. Over a 27 year career marked by mergers, acquisitions, and perpetual change, I have come to accept these five stages as necessary rites of passage that humans must endure as they navigate the inevitable shoals of change. It seems we all must endure denial, anger, bargaining and depression before we finally break through to acceptance.

While we all intellectually agree that our healthcare system is broken and is in profound need of change, most preferred that all the heavy lifting required to reduce healthcare costs as a percentage of US GDP, occurred on someone else’s watch. As Woody Allen once quipped, “ I don’t mind dying. I just don’t want to be there when it happens.”

We know that chronic illness, escalating costs, opaque and uneven reimbursement practices, and a $ 38 Trillion unfunded Medicare obligation would eventually bring the nation to its knees. However, it suddenly felt like the confederacy of agents, brokers, and consultants were passengers on a bus with no breaks that was careening toward a cliff of profound change. And then it actually happened: health reform. Prognosis: Uncertain.

Denial – Most brokers and agents objectively looked at reform as a flawed proposition as it failed to address fundamental cost drivers that were clearly contributing to unsustainable healthcare costs. Brokers were witnessing 20%+ increases for small business, a limited marketplace of insurers, huge barriers to entry for competing health plans and a supply side of providers that were up in arms over serial under reimbursement from the government and a Darwinian reimbursement environment where only the strong could survive. Our employer clients were angry with increases, predisposed to market their insurance each year to a limited field of insurers, consumed with avoiding disruption and content to cost shift to employees through higher deductibles and co-pays. It seemed no one was willing to touch the third rail of healthcare – affordability.

High performance networks, promotion of primary care, an emphasis on personal accountability for health improvement and value based plan designs seemed too complex, cumbersome and indecipherable for many small, mid-sized and larger employers who felt they little capital left with employees to impose additional changes. This reticence to be early adopters of critical cost management programs and the nature of fully insured pooling by carriers for smaller employers, conditioned employers to consider health insurance a commodity. Most brokers happily moved at the speed of their reluctant clients and remained in step with their insurance partners. Instead of focusing on risk identification, and mitigation, the industry focused on risk transfer, a generation of brokers and agents built wealth but did not seem willing to risk provoking clients out of their own death spiral. An entire industry was in denial.

Anger – As the Obama administration shifted its strategy from health reform to insurance reform, denial turned to anger as the industry found itself in the vortex of a poison populism. As insurers were pilloried for for-profit practices, and other third party players were painted as parasites draining the system of its sustainability, brokers felt their blood pressure rise.

The seeming hypocrisy of underfunded Medicare obligations, deficit financing by states facing billions in debt, a generation of consumers on the slippery slope toward chronic illness, employers overwhelmed and averse to change and an opaque and increasingly inflexible oligopoly of insurers – – led brokers to feel victimized and marginalized in the debate.

On the other side of the aisle, legitimate questions arose around broker value as critics witnessed commissions that rose with medical premiums and a lack of transparency on base and contingent compensation. There was difficulty in determining value for services that did not seem to bend the medical trend curve, and seeming relationships of mutual convenience between insurers and brokers that created potential for conflict of interest.

When reform recently passed, brokers gazed across a horizon line of regulations and did not like what they saw. Brokers recognized legislation as the first step in addressing fundamental flaws in the system but understood clearly that the Patient Protection and Affordable Care Act was uniquely focused on access and insurance market reforms. It would not materially change the trend line impacting private employers – – in fact, it could very well make it worse in the near term. Insurers driven by demands as public companies and possessing fewer levers to pull to impact rising medical loss ratios had become less flexible and defensive.

Brokers also recognized incentives in the new legislation that could accelerate the erosion of employer sponsored healthcare as costs would inevitably rise from increased adverse selection, government cost shifting, a new vouchers system allowing individual opt outs and less onerous penalties that could create tempting incentives for employers to drop coverage.

Questions are now being asked: Will the minimum loss ratio calculation pressure carrier’s retentions to where they will begin to unilaterally cut commissions? Will insurance companies attempt to disintermediate us? Am I prepared to defend my remuneration in the brave new world of transparency? If I convert my larger clients to fee based remuneration will my margins be severely impacted?

Will my lack of size or premium with insurers make me less relevant and more susceptible to unilateral actions? Do I possess the resources necessary to compete in a world where impacting claims costs will be more relevant than entertaining, shopping insurance and adjusting plan design options? Will state connectors attempt to supplant my role as an advisor?

As costs increase in the near term from mandated plan design changes, underwriting restrictions, Medicare cuts and minimum loss ratios, will companion legislation not be far behind that establishes a state or federal rate authority to artificially control prices? Judging from the insanity in Massachusetts – a market exclusively managed by non-profit insurers, universal coverage has led to an affordability crisis and the most expensive healthcare in the US. Are we headed over this same cliff? Will a public option reemerge if we cannot reduce barriers to entry for new players to offer employers more choice? Am I going to end up living in a card board box ?

Bargaining and Depression– Career professionals are already beginning to rationalize. “ We have until 2014 and many of the impacts will not be felt until 2018 and beyond. “ Others whistle in the dark, “ I just need to make it until my kids graduate college.” This period of bargaining is a mental feint to prolong change as long as one can to avoid the pain of conforming to a new normal.

Some brokers may just sit down in the middle of the road resigned to a belief that if the insurers do not get them in the form of reduced compensation that employer sponsored healthcare will slowly erode and an increasingly crowded and qualified mid-sized and larger employer brokerage and consulting market will leave them little if any role to play.

Some are taking these changes very personally. These brokers are becoming lightening rods in their local markets and catalysts elevating the discussion and debate about what next needs to happen to achieve access AND affordability.

They have accepted the axiom that any unsustainable trend eventually ends and that it has now happened on their watch. Attention is focusing on how they can become focal points for local, regional and national change, They recognize they are not bystanders and third wheels but they are key influencers and the nexus between the supply and delivery sides of the business. They recognize that they must write the next chapter of health reform and not merely be waiting to read each subsequent installment. Their grief has been brief, their anger channeled, their bargaining and depression endured and their entire focus now is on shaping the next stages of change.

Acceptance – Eleanor Roosevelt once said, “each person has a choice to either light a candle or curse the dark.” The best and brightest in the brokerage community understand that to broker is to consult and to consult effectively, one must enjoy a trusted relationship with a client. Any practice that erodes that trusted role should be avoided – especially if it is a legacy practice of an industry did not do a good job in changing our opaque and disconnected third party payer system.

Transparency creates enormous opportunity to delineate value. If value is defined as “outcomes divided by cost”, the successful post reform broker will delineate their services, the outcomes they hope to achieve and the costs of the services they will provide. Historically, many commission-based clients did not always know broker remuneration, did not employ service contracts and judged a good outcome as the absence of service disruption. The world has changed.

Consolidation will create odd bedfellows and strange alliances. However, in the brave new world, advisors must drive value across an entire employer organization. While insurers will be struggling to dispel the notion that they are not worthy of margins beyond those of a utility, brokers will need to convey value and if they cannot achieve the critical mass and resources required to compete, they will lose business.

The pressure to create competition and choice may help lower barriers to entry in markets and create new competitors to traditional carriers. More choice for employers requires more advisors to assist them in navigating through the minefields of competing carrier practices. As companion legislation continues to evolve, the need to serve clients as a legal and compliance interpreter will be essential. Merely copying new laws and emailing complex regulatory language to customers will weed out lower performers. Clients want to know: How and when does this effect me? What should I be thinking about?

Clients will require help in attacking the last frontier of healthcare – employee health and well-being. The desert of good intentions is littered with the skeletons of ineffective wellness plans that merely nudged individuals toward healthy lifestyles. True risk mitigation will require leveraging every aspect of the law to intervene to improve public health. The best and brightest will recognize that a healthy worker is less likely to file a workers compensation claim. A healthy worker will miss fewer days reducing absenteeism and costs associated with replacement workers. Population Health management will become as standard as loss control for property and workers compensation programs. It is motivating to think that by structuring a preventive care plan properly, we can detect asymptomatic illness and significantly reduce the rate of lifestyle based chronic illness.

A Brand New Day: Health reform is not terminal. However, it will require everyone to change. We are entering a strange, new universe forged out of intended and unintended consequences. However reform is also a relief because it is the beginning of a process (however unsavory) to arrest an unsustainable trend. As citizens, free market capitalists and parents, we do not want to leave our children holding the bag with record deficits and massive public debt. We always knew the process of taming entitlements and changing a dysfunctional third party payer system would be messy. As most in Congress lack the political will to take on affordability, it will fall to us.

Regardless of the twists and turns in these first few chapters of what will most certainly be a Dickensonian saga, there will always be a role for smart, motivated, transparent and intellectually curious brokers and consultants. The sooner each of us concludes our stages of grieving and gets on with accepting the new normal, the better chance we have to lock arms and demonstrate that we can be highly influential in a creating a better and more efficient healthcare system for tomorrow.

There is a story of Winston Churchill addressing an exhausted and beleaguered group of young RAF pilots during the height of the Battle of Britain. As he surveyed the demoralized men who had logged so many combat hours and had witnessed friends die in battle against a superior Luftwaffe, he stood silent and allowed a heavy pregnant pause to fill the air. Churchill turned to the pilots and posed just two questions:

“If not you, than who? If not now, then when? “

The primary purchasers of healthcare for over 180 million Americans are human resource and benefits professionals. The job description for most HR and Benefit professionals is managing human capital. These increasingly difficult jobs strive to achieve a harmonic convergence of employee attraction, retention and development that leads to growth in revenues and profit. Yet, when faced with increasingly inflationary healthcare costs and fewer choices to mitigate them, employers are increasingly taking the path of least resistance – passing on rising costs to plan participants rather than confronting more deeply embedded drivers such as poor lifestyles, lack of consumerism and a reluctance of stakeholders to be held accountable. It’s time we grab our national health crisis by the folds of its own fat and force fundamental change. It is going to ultimately fall to human resource, benefit and other business leaders to deliver some tough messages to stakeholders who have failed to solve this crisis.

As we follow the healthcare reform debate in Congress, the silence from many employers has been deafening. The genesis of true market-based reform can only occur at the level of the employer. HR and benefits leaders must exert a level of influence over the debate. As we enter this era of tough love and economic survival, it’s time for those who are most experienced to speak up. HR and benefits managers should consider the following eight steps as a means of seizing the high ground in driving market reforms in healthcare.

1) Advocate “loss control for healthcare”– Most smaller and mid-sized employers feel they have little leverage or control over their healthcare costs. Ironically, these same individuals are active and aggressive in managing the costs of occupational health through workers compensation loss control programs. If clinical industry benchmarking data indicates that 6% of a workforce is normally diabetic and your claim data suggests less than a 2% incidence of diabetes within your claims, you may want to focus on determining whether you have a higher rate of undiagnosed illness using health risk assessments and predictive modeling instead of blindly assuming that your loss experience is tracking more favorably than industry norms. You must design value based plans that remove barriers to care and encourage prevention. It is time we develop strategies to drive non-occupational health management as a course of business. Call it “wellness”, “productivity improvement” or “presenteeism” – it is all about improving the health of our employees and their families. The days of fencing with finance over the return on investment of a healthy workforce must be replaced by a corporate commitment to improve workplace health.

2) Have an opinion – Too many HR and benefit industry professionals do not express their opinions about what needs to change. Get involved in industry associations. A friend who runs a major employer coalition in a large US city confided to me how difficult it was to get HR and benefit professionals to participate in roundtable discussions with insurers, hospitals and other key stakeholders. Call it apathy or a lack of bandwidth. The absence of employers (particularly hard hit mid-sized and smaller employers) voicing strong opinions about how the next iteration of healthcare should evolve in each market creates a void that may soon be filled by politicians and academics who have a less pragmatic understanding of the irreversible downstream consequences of radical reform.

3) Insist that double digit trend increases are unacceptable – For insurers to continue to deliver core trends in excess of 8% and fully loaded trends well into double digits indicates that payers have not delivered on promises to offer lifestyle changing medical, disease management and claims management impacts. Insurance company underwriting and trend setting practices are an opaque alchemy. Any vendor who purports to offer health plan management services should have their remuneration tied to managing your medical trend. In the final analysis, trend drives cost. If the best that the for profit and not for profit healthcare industry can offer is double digit increases, it deserves to be replaced by an alternative system.

4) Force the C Suite to get help amplify your message– Senior management, finance and HR must work in partnership to assess risks, seek to eliminate and/or mitigate them, determine which risks should be retained through self insurance and which should be defrayed through risk transfer. The days of treating insurance renewals like the purchase of a car – “If they get to 10%, tell them we will renew. Otherwise, put it out to bid” – must be replaced with a more thoughtful year long discussion on claim cost drivers and ideas to mitigate near term and longer range claim costs. Benefits are an investment, not a commodity.

5) Understand cost shifting is not cost containment – Managing healthcare expenditures does not mean merely cost shifting increases to employees. It means engaging and communicating with employees around cost drivers, lifestyle obligations and plan changes that are designed to improve health. Many employers opt for open access networks allowing employees the ability to bypass primary care in favor of more expensive specialty care self-referrals. These paternalistic designs limit disruption but drive higher medical inflation which in turn, requires more cost shifting to employees. With new claims and episode of care data helping to designate providers who deliver higher quality and lower cost outcomes, we can design a new healthcare system around superior providers and higher quality outcomes. We can focus on rewarding primary care providers for keeping people healthy instead of bankrupting our system around a legion of medical specialties that are exponentially growing to serve the needs of tomorrow’s chronically and catastrophically ill.

6) Develop a plan – When was the last time your broker or consultant sat down with you during your budget cycle and helped develop your cost assumptions for the coming fiscal year? Every 100bps of medical trend saved translates into dollars contributed to earnings, shareholder value or private equity owner returns. HR and Benefits can been seen in a much more strategic light when a plan is developed and followed – particularly one that drives so much annual cost and increases disproportionately to all other corporate costs each year.

7) Participate in provider negotiations – Insurers are often maligned for their business practices. While health plans are clearly focused on shareholders and profits, they are critical partners to managing medical trend. Most insurers privately confide their lack of confidence that employers will support them if they get into a major fee dispute with a large hospital system or medical group. Larger hospital systems are banking on the fact that employers will not tolerate the noise from employees resulting from the loss of a major healthcare system from their network. This lack of solidarity forces the insurer to agree to pay larger fee increases in contract negotiations – leading to higher medical trends for the employer.

8) Calculate broker value as outcomes divided by cost -. There are 28,000 consultants, brokers, financial advisers and agents delivering advice on healthcare to employers across the US. Like any industry, there is wide variability among intermediaries. Many of these middlemen are reactive, focusing on annual plan marketing, issue resolution and administrative support services for HR. In the end, the calculus of determining service value should be outcomes divided by cost. If you cannot measure outcomes (e.g. year over year trend mitigation, claims and vendor performance management) and you do not know what your broker or consultant charges, it is impossible to determine the value of services.

The greatest single asset we possess in American business is our workforce. HR and benefits are the ombudsmen and advocates for these human resources and must use benefit plans as levers to drive productivity and process improvement. Sounds like a big responsibility? It is. While HR and benefit leadership may seem thankless in these dark days of recession, rising medical costs, declining profits and layoffs, it can be a highly rewarding platform for those capable of elevating themselves to the role of business leader – helping ensure the personal health of employees, their families and ultimately their company.